Jeffrey Currie dismisses fears of retreat in gold
June 2, 2006
By Tom Robbins
Cape Town - Goldman Sachs International UK managing director Jeffrey Currie, who is well-known for his bullish views on the gold price, said yesterday that strong demand for most metals meant that the long-term high price cycle was likely to continue.
Recent volatility in international markets, particularly in India, has sparked fears that the long-term commodity bull run could end with prices collapsing.
Interviewed on the sidelines of the World Economic Forum on Africa, Currie said high metals and oil prices were underpinned by strong demand as well as supply shortages.
But Currie, who is also the head of commodities research at Goldman Sachs, emphasised that with regard to metals, the main price driver was demand, while for oil it was capacity constraint.
The rapid industrialisation of China is continuing and there is a view among analysts that this will keep the long-term metals market bull run going, particularly among those metals used in manufacturing, even if there is a short-term price correction.
This view of metals is contrasted with a relatively low demand growth for oil, which could see this commodity having a shorter cycle, with prices falling sooner than those of metals.
Slack demand for oil and metals during most of the 1980s and 1990s saw very little investment in new capacity, or oil wells and mines, but the shorter lead times of extracting new oil reserves could result in oil prices coming down before those of metals.
Despite the longer lead times in developing new mines, both markets are characterised by long periods of oversupply, followed by undersupply, due to the high capital costs of commissioning extraction facilities as well as the relatively long time frames in constructing these facilities.
But high mineral commodity prices have not necessarily translated into the super profits that prices suggest, as apart from expensive development costs, corporations have had a raft of new regulations to deal with.
Many countries have passed tougher environmental laws and increased taxes as well as deregulating the minerals and energy sectors, leading to higher costs.
In some countries, synergistic cost savings, also known as vertical integration, are now a thing of the past due to deregulation.
Energy companies that previously developed a new oil field would often also have built and owned the accompanying pipeline, thereby cutting out any excess operating costs.
But under deregulation, the energy company might not be allowed to operate a pipeline and would have to pay a second company a rate, which included a profit for that company, for the use of the pipeline.
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